Health and Healthcare

RBC Says These 4 Top Biotechs Could Have Big Upside Potential

Lee Jackson

Published: September 19, 2016 8:25 am

Last Updated: January 13, 2020 3:27 am

We have talked in detail about how the political rhetoric has weighed upon the biotech industry. Toss in some scrutiny of pricing over a widely used product, and you have the recipe for the perfect storm from a headline perspective. The fact is, many of the large cap biotech leaders trade at multiples like big pharmaceutical stocks, but with far bigger growth potential.

Robert Sluymer and his outstanding team at RBC have consistently made the case that history tells us that declines in secular bull markets like we have seen twice in the past year are often shallow, and the rebounds are often very powerful and sustained. They noted in this report that although headline issues, which include the Federal Reserve and the election, are increasing volatility, four top biotech companies may be a solid play now. These are suitable for more aggressive accounts.

Amgen

This company posted outstanding second-quarter earnings and the biotech giant remains a top stock for investors to buy. Amgen Inc. (NASDAQ: AMGN) focuses on areas of high unmet medical need and leverages its biologics manufacturing expertise to strive for solutions that improve health outcomes and dramatically improve people’s lives. A biotechnology pioneer since 1980, Amgen has grown to be one of the world’s leading independent biotechnology companies, reaching millions of patients around the world and developing a pipeline of medicines with breakaway potential.

The company posted revenues above expectations and showed strong expense management. It also raised guidance for revenues and earnings, and many on Wall Street think the numbers could be conservative. Amgen also reaffirmed interest in mergers and acquisitions activity as a way to sustain long-term growth.

Many on Wall Street point to the company’s tremendous pipeline and outstanding forward earnings and revenue capabilities. Amgen’s double-digit earnings and revenue growth rate is expected to continue for the foreseeable future because of the company’s very deep clinical pipeline, which includes potential blockbusters Repatha for high cholesterol and Kyprolis for relapsed multiple myeloma. Amgen also has one of the industry’s deepest biosimilar pipelines, which is expected to generate upward of $3 billion in annual sales in the years ahead.

Amgen shareholders are paid a 2.33% dividend. The Wall Street consensus price target for the stock is $190.56. Shares closed Friday at $172.96.

Celgene

This company is another top large cap pick the RBC team likes. Celgene Corp. (NASDAQ: CELG) has an outstanding partnered pipeline, which most think is low risk and has the potential to yield several blockbuster drugs. Certain Wall Street analysts also think the company can grow earnings 15% on a compounded annual growth rate basis going forward. Otezla, which treats psoriasis and psoriatic arthritis, had achieved considerable prescriptions among physicians, but the scripts have slowed after a solid launch, showing the importance for sales outside of the United States.

The company reported outstanding second-quarter results with revenues up 21% year over year. In addition, the company raised sales guidance to $11 billion on strong growth across most major products driven by 16% in demand and 6% in pricing. Upcoming catalysts include GED-0301 endoscopy study in Crohn’s disease with top-line results expected in September.

Wall Street analysts have noted that the company has discussed at their recent conference the benefits of longer duration Revlimid. Celgene has a very compelling pipeline, and with four existing Phase 3 trial assets, that may add strong new drugs and revenue prior to the end of the decade.

The consensus price target for Celgene shares is $137.30. Those shares ended last week at $108.52.

Illumina

This is more of a life sciences play and may look better for more risk-averse investors. Illumina Inc. (NASDAQ: ILMN) provides sequencing and array-based solutions for genetic analysis. Its sequencing by synthesis technology provides researchers with various applications and the ability to sequence mammalian genomes. It also offers arrays for a range of DNA and RNA analysis applications, including single nucleotide polymorphism genotyping, copy number variations analysis, gene expression analysis and methylation analysis, as well as allowing for the detection of known genetic markers on a single array.

The company also provides various library preparation and sequencing kits to simplify workflows and accelerate analysis, as well as genome sequencing, genotyping and non-invasive prenatal testing services. It serves genomic research centers, academic institutions, government laboratories and hospitals, as well as pharmaceutical, biotechnology, agrigenomics, commercial molecular diagnostic laboratories and consumer genomics companies.

Surprisingly, the consensus price target is set at $154.67, and the shares closed Friday way above that at $172.97.

Regeneron Pharmaceuticals

This stock remains one of the favorites among portfolio managers and is another top large cap stock to buy on Wall Street. Regeneron Pharmaceuticals Inc. (NASDAQ: REGN) has been a performance monster over the past two years, and most Wall Street firms expect it to stay one. The company is focused on the development of therapeutic human antibodies for the treatment of eye disorders, hypercholesterolemia, cancer, inflammation and other diseases.

Regeneron’s product sales are driven principally by its VEGF inhibitor Eylea, which is approved for use in wet age-related macular degeneration and diabetic macular edema, and by Praluent for the treatment of hypercholesterolemia.

The company reported a better-than-expected quarterly profit, as U.S. sales of its flagship eye drug Eylea rose 27%. Eylea generated U.S. sales of $831 million in the quarter, topping the consensus estimate of $812 million. Sales are expected to continue a solid upward trend.

Shares closed Friday at $408.63, offering room to run to the consensus price target of $467.45.

These stocks are cheap relative to the S&P 500, and history says they won’t stay that way forever. In fact, the current consensus four-year growth expectations for the large cap biotechs has dipped since 2012 and is currently at the lowest level since 2010. In other words, cheap and somewhat ignored.